Transcription
Hello everyone and welcome back. In this video, I want to talk about a stock, an opportunity that I'm seeing in front of my face. I'm already a shareholder, and the conviction is improving so fast, so big that I want to buy it even more.
The company we are going to talk about today is MSCI. And as I'm doing more and more work on the company, maybe MSCI has become my biggest conviction at the moment. And as you can see from the stock chart, let me put the website in English so you see better. The stock has not moved a lot recently. The stock has disappointing performance at the moment. The stock has done nothing for 1 year, for 2 years, for 5 years actually. But the business has been growing fundamentally very fast. And I am starting to see some things that will happen in 2026, and it is not priced in. And I'm spotting some things the same way I spotted some things for Fortinet when it was down. I bought Fortinet when it was down a lot, crashing 30%, and for 10 months the stock did nothing. But I spotted some green flags and green flags and green new flags, and then boom, you explode to the upside. Maybe the same scenario will happen for MSCI. Maybe yes, maybe not. I'm publishing this video to share my thoughts about what I'm seeing for MSCI and why I'm extremely bullish for this year, but also for future years. MSCI is a quality compounder, and I want to make it a core position in my portfolio. Full disclosure, it should be roughly 12% or 13% of my portfolio. But I want to make it an even bigger position, like 15% of my portfolio, because I think the upside potential is immense, and there are some things that are not priced in, especially for next quarter. Next quarter will likely be a beaten raise, and I will tell you why in this video. Okay?
In case this is your first video, welcome. My name is Kristouph Nour. I've been investing in the stock market for almost a decade now, and I have achieved a performance of 25% per year. And so far, so good for 2026, I'm beating the performance of the S&P 500. I'm like a plus 15% year-to-date, and I'm outperforming the market because I spotted this. Okay? Now, as I got my lucky move once, analysis once, I want to do it again. And if I can do it twice per year, I'm fine. I can go and retire. So, I am seeing some things in MSCI, but first, let me introduce MSCI. In case you are not familiar with MSCI, let me do a quick analysis, a quick introduction.
Basically, MSCI is a big company in the US, and they create the benchmarks, the MSCI World Index, right? That's 50% of the business. That's this, the big index part, very profitable. That's their niche market, and they double down on this. Okay? That's 50% of the revenue. 25% of the revenue, that's analytics. So, data that is given to asset managers to know about the risk, to know about the correlation, sharp, volatility inside. And people pay, professionals pay to have more data on a daily basis to, I mean, regulatory speaking, they have to, and also to have more data and optimization of their portfolio. And the remaining 25% of the revenue, that's ESG. So, the same kind of data analytics, but for ESG or climate, headcount, happy at work, all these kind of things, and also private assets. Okay? But my thesis is not about ESG. My thesis is not about private assets. My thesis is not about analytics. I don't care. I only care about the big boy 50% of the revenue, the index part.
If you look at the financials for MSCI, you will see it's a stock, it's a business with exemplary margins. Gross margins of 80%. Operating margins of 55%, and net margins of 40%. All the margins are improving as I'm speaking. You scroll down, you can see revenue up into the right. This is beautiful. Net income up into the right. This is beautiful. Free cash flow up into the right. This is beautiful. And every year, when the stock is cheap, the company is doing buybacks. And in 2025, the company repurchased 5% of their shares. So, based on this, the management thinks that they are cheap. Okay? It's the biggest buyback they do since 2018. Okay? So, a lot of buybacks, a lot of growth, and some debt to do some leverage buybacks. Okay? It's not to worry at all. I mean, they have a debt of $6 billion compared to free cash flow of 1.5. It means in four years, they can repay their debt. It's fine. No issue for me when it comes to the debt. And it's a very efficient business model. So, the ROIC, return on invested capital, is above 20% and growing. So, the financials look good. The valuation is a forward P/E ratio of 30. So, it's not a cheap stock. And this is one of my main worries. It's not cheap. First of all, it's not cheap.
Now, I want to show you something else. I want to show you how they print cash. We'll talk about the valuation later. Later, I will show you my own DCF model, so you have an idea of the kind of intrinsic value I found. But first, I want to show you that last quarter, they have reaccelerated. I've been following this company for many years, and I've been a shareholder for 1 year, 1 year and a half. And very recently, they were talking about reacceleration of revenue. Guess what? It happened. The business is no longer growing 10% per year. Look at this. In 2025, they were growing revenue 10% per year. And now, 14%. I think the next quarter, so Q2 2026, they will grow much more than this. Let me explain why. As I told you, they have many segments, like three or four big segments. You have what they call the index, analytics, sustainability, and all other. But there is one segment that is growing very big right now, and it is driving all the growth. That is the index segment. So, my favorite segment, asset light, beautiful margins. You can see that when markets go up, like in 2021, the growth rate of the index part goes up. When markets go down in 2022, it's flat. I mean, no growth. And now, markets are going up. Okay? First point I want to make. Second point I want to make, I want to show you the profitability of this index segment. I will go step by step in this video. I will just take my time and explain what is happening so you understand. Nobody is left behind, and step-by-step, you will get my, you will understand my point. Now, if you are following MSCI, you may think it's a little bit slow. Don't worry. Wait 5 minutes, and you will see it will get complex. I've seen no one talk about what I'm about to show you. So, stay there. The margins for the index segment, all-time highs. Okay? So, we are talking about a profitable segment. 77% adjusted EBITDA margins. I don't like to look at an EBITDA margin, but this is the only metric we have to assess the profitability. So, fair enough. Fair enough to me. You have above 70% and growing more efficiently, and now we are reaccelerating. The index segment is reaccelerating. Growth rate of 17%. Uh, no, where is it? Index operating revenue, mm, on a quarterly basis. Boom.
What is priced in from Wall Street? Let me start the analysis by saying this. What is priced in? You go to fiscal year EP quarterly basis on estimates revenue and you look at what is priced in for next quarter, like in 1 month, is the growth rate of revenue of 11.8%. Okay? Wall Street thinks the revenue will grow at 11%, and then next quarter 10%, next quarter 9%, and 9%, and 10%, and 9%. Okay, so not great. But as you already saw, the index revenue is re-accelerating massively, plus 17%. And the total revenue of the business in orange is re-accelerating, plus 14%. Wall Street doesn't believe that this really has legs. Wall Street thinks that the growth rate will go back down, from 14 back to 10, back to 11, and then stay low. I disagree. And this is why where I have a little bit of a contrarian view on MSCI, and why I want to buy the stock even more today. Because how does, um, how do they make revenue for the index revenue? This is a good question for you, by the way. If you are an MSCI shareholder, do you know how they make money for each of their segments? Well, for the index segment, how do they make money? Well, they have an asset base, an AUM, sorry. An asset under management that is following their benchmark, the MSCI World Index benchmark, or any MSCI index, emerging market, developed market, custom indexes. Fund managers are benchmarking themselves and their performance against such indices. And fund managers have to pay a little fee to MSCI to have the data in real time. So, you pay thousands of dollars, tens of thousands of dollars, just to have the data for MSCI and compare yourself whether you are above the index or below the index. And people pay this, pay this on a recurring basis, every months, every year. Okay? You have big fund managers, you have the big BlackRocks of the world that are using MSCI and paying millions and millions and millions of dollars to just have a clear benchmark. And I know this because I have worked in the asset management industry. Once you start using a benchmark, you don't change. It's very hard to change your benchmark. You will never change your benchmark from the MSCI World to the S&P 500. No, you just don't, you, you don't change the rules of the game in the middle of the game. Your fund starts benchmarking itself against this index. Okay? That will be this for the rest of its life. And if you change your benchmark, you will raise too many questions, too many yellow flags. It's a mess. So, it's very sticky. Customers are very sticky, and they're gladly paying more. By the way, if you want to become a better investor and improve your performance, I have a coaching program. It gives you the exact method I've used to generate 25% per year for almost a decade. More on that at the end of the video.
As markets go up, MSCI is getting more money. As I told you, they get a small fee, a small royalty fee out of the total AUM, asset under management, that is benchmarked against MSCI. But, if the stock market doubles right now, imagine the stock market doubles, the AUM, the assets, will double. And MSCI gets a royalty like a 0.3%, 0.03%. 0.3% of something that doubles as a royalty stream, this is lovely. Your revenue will double. You will follow the fluctuations of the market. And if you have a huge market crash, boom, the revenue will drop for MSCI. Okay? So, based on this overall stock market, the volatility of the stock market, MSCI can get more profitable or less profitable, grow a lot or grow less. And now I come to my point. After many minutes of introduction, now that everybody understands, uh, here is my point. The index revenue has grown at 17%. Okay? If you go to segments and KPIs, you can see asset-based fees, uh, operating revenue grew 26%. So, you would assume that during the first quarter of 2026, like for this, for this chart here, last quarter, markets went up, right? And it's not true. The fees, royalty streams went up a lot, not because markets went up. So, now I will have to use Fiscal AI. I will have to put untoggle this to scroll down, scroll down, scroll down, scroll down. And you go to market appreciation and, uh, cash inflow. These two lines. And this is why Fiscal AI is so great. I have everything in one website. You can use my link in the description to create your own account completely for free for 2 weeks. Okay? So, you can do this in the house and verify all my numbers. Okay? Stay with me now. Now that, uh, you are starting to hear something, pay attention because I will only make this video once. Okay? I told you the asset-based fees were reaccelerating to 26%. Like last quarter. I told you that the index operating revenue was lifted because of this. Okay? But, what happened last quarter? During last quarter, you had the market appreciation line in purple that was negative. Markets went down. So, how can you make more fees when markets go down? Well, because you have cash inflows. Cash inflows in green. And as you can see from this chart, we had a cash inflow, new amount of cash that was benchmarked to MSCI indexes of $103 billion. And if you go back in time on a quarterly basis, this is the biggest amount we've had for the past 6 years. Look at this in green. Boom. So, it was a $50 billion, $60 billion during COVID, and then a drop during 2022, and then the rebounding $50 billion, and boom, massive inflow of cash that is now in the MSCI ecosystem, $100 billion. So, MSCI can grow a lot their asset-based fees if they get a lot of cash inflows despite markets going down.
Now, what can we assume for the Q2? For the cash inflow, what can we expect for next quarter, for Q2? It's a very good question. Maybe, and I say maybe, the inflows next quarter will be as big as this, $100 billion. Maybe they will decrease and go back to $50 billion, still cash inflow because the world is still healthy, and we have heard from private conferences that MSCI is still safe. I would say it's highly unlikely that this green line goes down to zero, right? The only time it happened was in, uh, March 2020. So, market crash of COVID, and 2022, market correction, recession. Now, we are not in a recession. We don't have a market crash. Markets go up. So, I would say it's quite likely it goes to, I don't know, 60. I, I have no clue. And nobody can, um, estimate this, actually. I have, I am reading everything, and I don't have the data to know whether it will be good, great, or mediocre, or bad. So, let's assume the green line in next quarter will be, I don't know, 50 million, 50 billion, 50, 60. Okay? But what about the market appreciation in purple? That we can forecast. And now, let me show you something else. I can use all, uh, any benchmark, any index, because the liquidity is the same. So, between, uh, Let me click on this. As you see from here, the purple line was negative for the first quarter of 2026. So, between January 1st and end of March. What was the performance of the S&P 500 between January 1st and end of March? Let's see. Let's see. Uh, Okay. January. Let me put this. January 1st. Maybe that's this one. And end of March. Oh, that's strange. That falls exactly at this bottom of this market correction. Not so strange, actually. Boom, end of March, March 31st here, okay? So, if I want to be correct, you have this small green candle that can do the work. Okay? The market fell 7%. The S&P 500 fell 7% during this period. You can play around with some numbers. You can say it fell 5%, good to me. My point being, the markets fell during the first quarter of 2016. And as a very lucky phenomenon, it timed the bottom. Which means for the next quarter, Q2, it will be between April 1st and end of June. And for the moment, during this mega period, we have a mega rally. A mega rally, so you start from this, and for the moment, the S&P 500 is up 17%. You can, as always, you can play around with some numbers. Maybe you can start from this big candle here. My point being, it's a mega rally that shows a lot of strength, and we are above 15%. So, it's very likely the purple line will go up next quarter. And it's the exact same playbook that we had last year. Do you remember last year? Liberation Day. The markets fell because of tariffs, and you can see, uh, between January, so that's there. January and end of March, that's what we have. Boom. Markets fell down. From this to this. Markets fell 7%. And then during the next quarter, we have an approximation, markets went up roughly, I don't know, 12%. 2026. My opinion is it's a playbook. It's very similar to 2025. So, we can expect a massive rally and a massive gigantic purple line. Well, what happened next year? What happened next year? If you look back in time, uh, for March 2025, we have, we had a big decline in purple. It's not negative because it's not exactly the S&P 500, right? It's the MSCI World, but it follows the same liquidity. So, big down move and a big rebound. The purple line was 193 billion dollars for Q2 2025. I think for next quarter, the purple line will be as big. You will see roughly 200 billion dollars. So, now we have the green that is at all-time highs, massive inflow of cash. What if it continues? What if next quarter we have again 100 billion dollars? I don't know. It can happen. But what will happen, not can, but will, is purple line will go up immensely. So, if you have 200 billion dollars of purple plus 100 billion dollars of green, that's 300 billion dollars. I think we are about to witness a massive big jump next quarter, and this is not priced in. I think it will be more massive than June 2025. I would be very surprised if it's not bigger. So, what was the sum last year? $241 billion. I think it will be more. Maybe 250, 260. For the green line, I have no clue. My guess is as good as mine. But for the purple line, I have a guess.
Now, if these two lines are about to show a gigantic big candle next quarter, it's very likely that the asset-based fee revenues are about to grow immensely. And now, last quarter, the data we have is asset-based fees are reaccelerating to 26%. And I just told you they're about to reaccelerate. So, what if I need to put my face here. What if asset-based fees are about to reaccelerate massively from 26% to rebound, rebounding above 30%? Do you think the overall business of MSCI will grow more or decelerate? I think it will grow more. So, the index revenue, the cash cow, very high margins, do you think it will reaccelerate next quarter or decelerate? I think it will reaccelerate. And now it is growing at 17%. It can grow to 20%. And it's very important to understand this phenomenon to know the overall growth rate of MSCI. If the index growth rate is fine, the overall revenue is fine. You can see a strong correlation between the blue, so index, and the green, total revenue. If the blue line goes up a lot, the red line goes up a lot. So, I think the blue line will reaccelerate and grow above 20%. Maybe I'm wrong, maybe I'm right, but the more I read about it, the more bullish I become. So, I think the red line is about to grow much more than this. The overall revenue will grow at more than 14%. 15, 16, 17, be my guest. So, I think the revenue will skyrocket in terms of growth next quarter. And let me remind you of what Wall Street thinks. Wall Street thinks that they will grow revenue at 11%, 12%.
Now, I want to go deeper. I want to show you something else. I told you about this. I told you about the mechanism, how they monetize their audience, royalty stream, blah blah blah, blah blah blah. Um, at the same time, there was a private conference for MSCI a few days ago. And in this conference, they say some very interesting stuff. They said that MSCI lied. And boom, I get you hooked like this. So, it's a conference, what happened? It's a conference that was released in May 5th. And I don't know if you guys have listened to it. You see Fiscal AI, I mean, everything is here. You see me navigate. Fiscal AI is a big website for this. Try it out, link in the description. You have the conference, you can click on AI summary to have the audio, but also the summary. And what do they say? They say that the CEO lied publicly. Instead of, um, uh, delivering as many products as 2025, they did for 2024. In the last quarter, so first quarter 2025, 2026, sorry, the CEO said that in Q1, so now, they delivered as many products as the entire year of 2025. It is not true. Um, Henry, Henry, here we go. Last call, Henry, so the CEO Henry Fernandez, said that MSCI has introduced more new products in Q1 2026 than they did all of last year, 2025. You know, we've seen all that momentum, but, uh, it's not true. Uh, because what is true is that in the first quarter of 2026, we introduced roughly as many products as the whole 2024. In 2025, we launched roughly twice the size as 2024. So, maybe Henry got a little bit of himself and was too enthusiastic. The point is still the same. MSCI is re-reaccelerating more products. In one quarter, they did the equivalent of 2024, which means in two quarters of 2026, they will do the equivalent of the entire year of 2025. And next thing on the call, they say they talk about velocity. Velocity. They want to exit 2026 with five times more product than in 2024. So, you can divide this by two, that's 2.5 more products than 2025. Basically, in 2025, they doubled the amount of products from last year, and now we are in 2026, they will double the amount of products from last year, so 2025. So, they will use AI to create more products, more services, and grow their revenue more. This is the reason why revenue is also accelerating. That's a new leg of growth, untapped potential. Here is another one. They talk about credits. They talk about, I think, how do they call it? Questions. They will use credits. Mhm, yeah. They will monetize their user base thanks to AI because they will use LLM inside MSCI. So, if you ask 1,000 questions, 100,000 questions, 1 million questions, you will have to pay on a consumption-based revenue stream. So, there is a consumption layer. There will be a basic consumption pattern included in the basic fees. You know, you ask 10 questions a day, we're not going to charge you money. You ask 1,000 questions a day, maybe we start thinking about it. You ask 50k questions a day, we will surcharge you more money, right? So, MSCI just told you they're going to put consumption-based royalty stream, a new monetization system inside MSCI, a new leg of growth for MSCI for revenue that can reaccelerate. So, it's very likely that it comes, and the revenue has another leg of growing more than 14%. Let me remind you of what Wall Street thinks. They think, well, the revenue will grow at 11%, and then 10%, 9%, 10%, 9%. Revenue does not believe this. Well, I sure believe this. Okay, I've been following Sorry. I've been following MSCI for a while. Most of the time when they say something is true. So, [snorts] I think they can reaccelerate massively.
Now, something else. I mean, you clicked on this video, you will be filled with information. Leave a like. Leave a comment if you like this raw format of just having the information. You see, let me remind, let me remove the total revenue. The index revenue and the asset-based fees. Asset-based fees, so the royalty stream they get out of the total AUM. You saw that, uh, Q2 2025 was very strong. The rebound of the market after Liberation Day. And maybe you will see the orange line and say, if the market rallied so hard, why is the orange line, the asset-based fees, only 12%? Why are you, why didn't you grow 20% per year, uh, when you had such a strong rally? And I'm glad you asked. This is a very good question. Look at this. The asset-based fees were growing 18, 20% per year. And you're telling me markets rebound immensely in Q2 and the growth went down. The asset-based fees went down. What is happening? And will it go down in this quarter? So, I did the work for you so you don't have to. And the reason why the asset-based fees were down is not what you think. You can have a few guesses. Maybe different monetization, maybe different assets depending on what kind of benchmark you have, you have different kind of fee structure, maybe they put the assets under management too, too late in the quarter, so in terms of timing, you get the real T too late. No? No, no, no. The growth decelerated because of one simple reason. And if you go back to the slides on fiscal year, you go to slides, you scroll down, you go to Q2 2025, you, you put full screen, so your audience knows better, sees better. You scroll down and you click on this, you see this. Other information. What is that? Foreign currency exchange rate fluctuations reflect the difference between the current period reported as a report anyway. While operating revenues adjusted for the impact of foreign currency fluctuations include asset-based fees, asset-based fees that have been adjusted for the impact of foreign currency fluctuations. The underlying assets under management AUM, which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. Approximately 3/5, so 60% of the AUM is invested in securities denominated in currencies outside the US dollar. And any such impact is excluded for the disclosed currency, currency adjusted variances. So, maybe the reason why the growth rate was so low was because of currency. They just told you 60% of their fees are not in dollars, but in euros, for example. Interesting, right? So, you can check back in time. I mean, is this really the reason? So, you go here, you type euro, uh, euro dollar, euro dollar back in time. Let's see. So, they talk about Q2 2025. So, it's between March 1st and end of June. What has been, I mean, do you have a lot of changes for this relationship between beginning of March here and end of June here? Oh, that's strange. This is the exact moment we had a rally. Exactly the moment. Like, bottom ticked the beginning of the rally to the end of the rally. And the euro dollar parity went from 1.04 to 1.17. That's a big change. And MSCI is telling you, yeah, the currency exchange has an impact on us because 60% of our operations for the asset-based fees are linked to things outside the US dollar. So, yeah, if you have a negative change such as this, it is impacting our business model. So, I did some work. I did some analysis. I did some mathematical, uh, arithmetic formula, and I found that the impact of this currency change is 4 and a half, 5%. So, if you didn't have such a big change in currency, the asset-based fees for last quarter would not have grown at, uh, 12%, 12.7%, but 17%, which is much more in line with what we had in the past. And maybe I'm being conservative, and maybe the growth rate was higher than this. So, the next question is, will we have the same problem next quarter? To really compare Q2 2025 and Q2 2026, so now in 1 month, will you have a currency problem? From what I see, no. The currency has not moved. The euro US dollar parity has not moved for the past few months. Okay? If this line goes up again, it will be a negative. And now, if this line goes down, it will be a positive to MSCI, but I'm not forecasting any decline. I think it will stay flat. So, if it stays flat, you will not have a net negative of, you will not allow lose 5% of growth, and it's quite likely MSCI rebounds. You don't have an extra drag from currency. So, it's quite likely the asset-based fees recover because markets recover. It's quite likely the inflows in green continue. And it's quite likely this orange line, asset-based fees, grow above 26%. Uh, yeah, I mean, they can grow a lot. The comps are very easy. Last year, the growth rate was 12%. And I'm forecasting something else. I'm forecasting that next quarter, if this line goes above 30%. People will act shocked because they will compare 30% to 12% last year and say, "Oh boy, it went from 12 to 30. How beautiful." Now you know why. It's not because MSCI was bad before. It's because of currency exchanges. Okay? And, um, Is this the first time they grow 30%? I mean, no. They did it in 2021 for three quarters when markets went up. Q2, Q3, Q4. So, they can do it. I think they can do it. And if they grow this asset-based fees more than 30%, the index revenue will grow a lot. And if the index revenues are growing a lot, the revenue will grow a lot. So, all of this to say, my conclusion is the revenue is likely going to reaccelerate massively next quarter. I wouldn't be surprised if the revenue grows to 16%, 16, 16 and a half percent. I don't know. Um, but I don't think it will decelerate. I would be extremely shocked, surprised if the revenue doesn't grow 14%, but they grow like 13, 12, 11% like very surprised. My base case scenario is growth reacceleration of revenue, which is not what Wall Street thinks. So, I like being a contrarian here. And if this quarter, the next quarter is shocking because of what I just told you, the reacceleration, the new monetization, the new delivery of new products because of AI, because of asset fees, etc. If you have all these stars that align, Wall Street will upgrade all their price targets. And the stock can boom during the earnings report. The stock can go up there by 10%.
Now, the sentiment for MSCI is not great. People look at the stock price and say, "Look how bad it is." Uh, they look at the 5-year stock price and say, "It has gone nowhere, so the stock will never go anywhere." Okay, fair enough. If I'm happy to take the other side of this analysis. 5 years ago, the company was a very good, but the stock was very expensive. And maybe it's time to break this resistance and grow again. And, um, I can show you the valuation now. I can show you the valuation. 5 years ago, this is what we had. Um, I can show you two metrics. I can show you first the forward price to free cash flow using Wall Street estimates. So, we are a little bit conservative here. Anyway, in 2021, the forward price to free cash flow was 53. Very expensive. And the valuation got cut in half from 53 to 26. So, of course, the stock will not grow. You have a valuation that gets cut in half. So, if the profits have doubled, you go to the same point. You go to the same point. And this is exactly what has happened. Now, the valuation can't get get cut in half again. I don't think they will drop from 26 to 13. I think it's almost impossible. It can grow again, or it can become stable again. But if you are a business, if you have a business growing at, [clears throat] roughly 15% per year, the stock is now at fair value and it can generate roughly 15% per year. For an asset light compounder with a beautiful moat, a management team that owns 3% of all the shares, and a management team that is buying the dip. I first told you about the buybacks. I will tell you something else now. This video is filled with information. Leave a like. You know what to do to boost the algorithm. I can tell you that the management itself, the CEO, is buying the dip. Um, I recently posted this inside my coaching program a few days ago. This is the insider transaction pattern when the CEO bought and the stock price. You see these green dots here? Here in 2025, the stock dropped, the CEO bought the dip. The stock goes up, he doesn't buy the dip. And then boom again, the stock goes down, the CEO buys the dip, you have another green dot. And the stock goes up, nobody dip. We are at the beginning of 2026. And then in February 2026, the stock drops a lot, and the CEO buys the dip, buys the dip, buys the dip. The stock recovers, nothing. And now very recently, like 2 weeks ago, the stock dropped, the CEO bought the dip. Every dips have been bought. Every dips has been bought by the CEO. The CEO is telling you that the stock is cheap. You know, how, how many times do you want the CEO to tell you this? They are doing the biggest buyback of ever. They are doing massive buybacks taking debt to buy back as many shares as possible. They are telling you the business is about to reaccelerate because of AI. They don't need employees anymore. They are just stop the hiring and putting everything inside AI, reaccelerating the revenue. The CEO himself is buying shares with his own money for his family. And the stock is doing nothing. And this confidence for the CEO is very strange. I think we are about to witness a massive rally in MSCI. I know this video may age poorly. If I'm wrong, that's horrible. But if I'm right, that's lovely. Because I think despite the stock being not cheap, I will still continue to buy. I think I will do it. The company, the stock price dropped, as you can see here, because of Anthropic and Claude and a new model. Anyway, scary headlines. The stock dropped to $560, and the CEO bought the dip here. Every dips, the CEO is buying. And now the stock is back to $600. But I don't know why, in terms of timing, maybe I'm too stupid. I did not do this analysis of market inflow, market appreciation, before. I recently realized it, and I said, "Oh boy, the Q2, the second quarter, is about to print cash, and nobody looks at it." So, now you have Wall Street analysts that are upgrading their price target on MSCI. The stock is up 2% as I'm recording this video. Pre-market plus 2%. I want the stock price to drop to buy the dip, of course. But even today, I don't think the stock is expensive. I told you about the price to free cash flow, the forward price to free cash flow. We are at 26. It's reasonable, right? It's not as if we were at 40. So, even if the stock price is going up in the short term, like at least week or when you will watch this video, I don't think we are in expensive territory. We have an exemplary business that will reaccelerate at a fair price. At a fair valuation. I bought the deep massively when we had the forward price to free cash flow here, 24, 25, and I don't want to be, uh, looking at this number too much. If we go from 25 to 26, I don't want to stop buying. I mean, come on, guys. 25 to We don't care. 25 to 26, we are peanuts here. So, maybe it's good to not be a a cheapskate here. And just look at the big picture where you see MSCI in the next 5 years. I don't care if it's 25. I don't care if it's 24, 27. I still think MSCI will break the resistance and grow immensely in the next 5 years. So, I think despite the stock not being down, I will buy.
I will use another valuation metric that I created on Fiscal Eye. That's another reason why you should use Fiscal Eye. You could create your own custom metrics. And here's the only website that allows you to do this. Anyway, I have plenty of custom metrics, and I will use this one. The orange line, the EV to free cash flow if you exclude the SBC. EV because the company has some debt, so I'm looking at the enterprise value. And I want to adjust the SBC, the stock-based compensation, to really know what is the core operation of the business. And here is the valuation I find. Here is this in blue. During the past decade, here's the valuation. The value, this valuation ratio varied between 23 and 77. During COVID lows, it was at 33. And now we are at the 34. As I told you before, in 2021, the stock was high and the valuation was high. This ratio was at the 77, 78. It was crazy expensive. And then it declined to 60, to 50, to 40, and it recently declined to 30. And I bought the deep heavily when it dropped to 30, 30, 31, and now, Oh, I have to address it now. Now we are at 34. So, we are not expensive, but we are not cheap at the moment. If I had to open a position and start a position in MSCI, I don't know the allocation I would have. But now I think I would make the following move. I will increase the position from 13% to 15% by 2%. Yes, all this work for only 2%. I know. But if I'm right, the same way I was right for Fortunate, the stock will grow immensely, and from a 15% allocation, it can grow to 20% allocation. And I'm very happy to have this in my portfolio. Big bets, concentrated bets, because I know what I'm doing, and I did the work before. I think the, and estimates from Wall Street are too pessimistic. I think people don't know how to analyze MSCI, and people don't know what to look for. So, I told you about the CEO buying. I told you about the massive second quarter that will come. And I mean, the stock can go up 10% in one day. If you have shocking numbers, anything can happen, and I want to be here if it happens.
And, and now I will show you the DCF. If you think the revenue will grow at 14%, and if you assume the margins will stay the same, then you can put a free cash flow growth rate of 14%. I will use a DCF model on Stock Unlock. This is the best DCF model I have found on the internet. You have a discount code in my description to use it. It's the best one, number one. I only use this one, very simple. So, we are forecasting free cash flow that can grow at 14% per year. A price to free cash flow, we said roughly 30. And no growth in dividends. And they can do buybacks of 2%. This can be conservative, but a base case scenario. What if the growth stays the same at 14%? If this is the case, MSCI today is 35% undervalued. The fair value is above $800. And if you buy today, you can expect a CAGR, compounding compound annual growth rate, of 16% per year. 17% per year. This is all estimates, right? This is not guaranteed returns. This is based on this mathematical formula and this scenario, this may happen. But what if growth reaccelerates or margins improve? What if you are a little bit more optimistic and the free cash flow can grow because of margins improvement? Then the stock may be 47% undervalued, and you may generate 18% per year. The fair value is $890. And now, if you are pessimistic, if you think the free cash flow will decelerate because of a stock market crash or a recession, then the price to free cash flow will drop to 25. Fair enough. If you want to be conservative, this is what you will have. They will do more buybacks, obviously. So, on a pessimistic scenario, the stock is slightly undervalued, 9% undervalued. The fair value is $662, and the CAGR is 12%. Okay? It's not an absolutely pessimistic scenario. But I think on a bad scenario of a market correction and then recovery, like a slow market, this may happen. And I will not do the DCF for an up, very bullish optimistic scenario. What if MSCI becomes a headless company that is cutting some staff to grow margins and reaccelerate to 20% per year? No, no. I don't want you to salivate too much. So, we'll just keep it to it. So, yeah, I'm buying for, I'm buying MSCI because I can achieve roughly 15% per year. I may achieve 15%, 15% per year, maybe, maybe not. And I think Wall Street is wrong. I think Wall Street is too pessimistic. They think the stock will grow, the revenue will grow at 10, 11% per year. I very strongly disagree here. And I made some videos a few months ago about Fortinet saying I disagree about Fortinet. I think Wall Street is wrong, and they will reaccelerate much more than this. And it seems like very few people are good with that. Very few people agreed with this strategy. The stock was down for 10 months. Stable for 10 months in a row. The stock was not moving. And then boom, suddenly it snaps, and the stock shoots up, and you make fortune. So, I can be patient. I'm fine with MSCI as long as they are doing strong buybacks, management is buying the dip. I'm buying MSCI because I think it may generate 15% per year for an absolute compounder. And I want my portfolio to be filled with these opportunities. Asset light compounders, zero capex, zero acquisitions, or minimal acquisitions, strong buybacks, strong margins, strong efficiency, wide moat, strong management team, insider ownership, CEO buying the dip, like intelligent capital allocation. And this is what I'm seeing for MSCI. I hope this video was helpful to you, and let's see in the future. Let's see in the next few weeks when they report earnings if my theory was right.
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